Banks revisit strategies after repo, CRR hike

Written by Kumud Das | Mumbai, Jun 29 | Updated: Jun 30 2008, 06:12am hrs
With the RBI raising the CRR and repo rate by 50 basis points each, major public sector banks are revisiting their strategies for the current fiscal and further downsizing their targets.

Bankers feel that with no sign of oil prices cooling off, and the governments greater thrust on monetary policy to bring down inflation, the central bank could take stringent actions in the future. Clearly, banks say they will have to undertake regular fire-fighting since the scenario would keep changing, and the new targets too may be revised downwards.

This effectively means banking industry will have a tough time ahead. There can be more rate hikes in future, said the chief of a public sector bank.

State Bank of India, the largest bank, has projected a fresh target of Rs 10,00,000 crore in its total business during the current fiscal. While the credit growth has been projected at 22%, the deposit growth is also likely to be in the same range. This could be further scaled down, sources say.

The bank officials stressed that the business plans of a bank keep changing as per the circumstances and the market behaviour.

KC Chakrabarty, chairman & managing director of Punjab National Bank, said his bank has now projected a growth of 20% in its credit and 17% on deposits during the current fiscal. While credit was likely to grow by Rs 1,70,000 crore, the growth in deposits had been projected at Rs 1,66,000 crore by the fiscal-end.

There will be a marginal impact of the recent hikes in CRR and repo rate by the RBI on the banks spread, which is likely to come down to 3% from the existing 3.2%, he said.

Bank of India (BoI) has projected a target of 21% growth in deposits and 18% in credit for the current fiscal year. Of this, domestic credit will contribute 18%, whereas overseas credit will contribute around 15%.

Similarly, the contribution of domestic as well as overseas deposits will be 20% and 15%, respectively.

The bank is now looking at achieving a total business-mix of Rs 3,12,000 crore by the end of the current fiscal.

The state-run Bank of Baroda (BoB) is looking at business growth of 20% by the end of the current financial year. The bank has projected a growth of 18% on the deposit side and 22% on advances front.

The current business-mix of the bank stands at Rs 2,58,735 crore, which is likely to be increased to Rs 3,10,000 crore.

MD Mallya, chairman & managing director, BoB, said, We see our CASA (current and savings accounts) growing at 25% during the current fiscal. Right now, the CASA constitutes 36% of the banks balance sheet, which is likely to grow to 38% by the end of the year. The bank has projected a target of overall 20% growth in retail business.

Similarly, the SME and corporate growth as projected by the bank were 27% and 25%, respectively, said Mallya.

Mumbai-based Union Bank of India has projected a deposit growth of 22% and a credit growth of 20% during the current financial year. Thus, the overall business of the bank was likely to witness a growth of 20%.

Factors like tightening of the monetary policy and anti-inflationary measures will have their impact on the banks balance sheet. The concurrent CRR and repo rate hikes by RBI have, in fact, pushed up the cost of resources for the bank.

Currently, the cost of deposit of the bank stands at 6.19%, while the cost of funds was at 5.73%. Significantly, the bank was going quite slow on bulk deposits, which have come down to 16-17% of the total deposit portfolio of the bank from 19% a year ago.